Leave policy

Leave Policy For Employees - Crafting a Company Leave Policy For Employees in India

The language and tone of your company leave policy is like a sneak peek into your company’s vibe and values 💫✨💿🧘🌈☀️. Dive into the best practices and as a bonus, grab our free template.

What is a leave policy?

A leave policy is a guide detailing all the dos and don'ts for each kind of leave your team might need. Consider a leave policy as the go-to playbook for your team's time-off needs. 📖

From vacations and sick days to maternity breaks and those tough moments of grief, it maps out the 'who, what, when, and how' of availing leaves. 🌴🤒👶❤️. 

Purpose of a company leave policy for employees

🌴 Leave: More Than Just a Break, It's a Right! 🌴

⚖️The Legal Framework

In India, employee leave isn't just an employee perk —it's a statutory right, governed by legal pillars like the Factories Act and regional Shops and Commercial Establishment Acts.

👪 Life Beyond the Desk

Work is just a part of life. Births, deaths, illnesses, family events... life keeps happening. Employees juggle multiple roles recognizing and accommodating these essential breaks reflect an organization's holistic understanding of its workforce.

💰 The Beauty of Paid Leaves

Who doesn’t want to take a leave without the constant worry of losing their pay? And guess what? When employees relax, they come back with more zest. Plus, the stats back it: A solid leave policy = happier, more productive employees.

🌟 Your Company's Professionalism Meter

A clear, consistently-implemented leave policy? It’s a golden ticket to showcasing your company’s professionalism. The transparency? It builds trust, and happy employees make a strong brand.

First Impressions Matter

For new joiners, understanding leave policies is crucial. They shouldn't be left wondering about their entitlements or the application process. Clear communication right from day one can set the stage for long-term employer-employee trust.

👎The Downside of Not Having a Defined Policy

The absence of a clear leave policy can result in disruptions like unanticipated absences and declining productivity. Such issues, however, can be preemptively addressed with a robust leave policy.

Scope of a leave policy

A leave policy will be applicable to all the regular employees of the organization. 

Things to note while developing an employee leave policy

Here is a checklist that you should keep in mind before designing a company leave policy.

👉Diverse Leave Options: What types of leaves will you offer? From sick days to sabbaticals, the choice is yours.

👉Guidelines Galore: Every leave type deserves its playbook. What are the rules that make each unique?

👉Weekends Unplugged: Define your weekend policy. Is it the traditional Saturday-Sunday? Or perhaps a mid-week break?

👉Public Holidays Countdown: Time to map out the festive calendar! Which national or regional celebrations make the cut?

👉Extra Perks with Paid Leave: Remember, these are the cherries on top, above the statutory public holidays. Who doesn't love a paid break?

👉Plan B - The Unpaid Leave: Life’s unpredictable. If employees burn through their paid leaves, having an unpaid leave option can be a lifesaver.

Types of leave in a company

In addition to public holidays, organizations have the following types of leaves. They are

  • Compensatory off (also known as comp. off)
  • Maternity leave (ML)
  • Paternity Leave 
  • Casual Leave (CL)
  • Sick Leave (SL)
  • Leave Without Pay (LWP) or Unpaid Leave
  • Bereavement leave
  • Sabbatical Leave

Here earned leave and sick leave are governed by the Labour Laws of India. The rest of the leaves can be decided by the organization. 

Nowadays, there is a shift -  many forward-thinking employers are championing 'unlimited' leave policies. This empowers employees with choice, balancing flexibility with a core principle: deliver quality work on schedule.

Designing company leave policy for employees - the rules

As mentioned above, after deciding on the types of leave that can be availed by the employees, there is a set of tailored rules that needs to be set for each category.

👉Entitlement: Determine the amount of leave, frequency, and distribution timelines.

👉Leave Allocation: Determine the annual leave quota.

👉Granting Cadence: Choose a distribution rhythm - monthly, quarterly, or annually.

👉Leave Shelf Life: Set the expiry duration for unused leaves.

👉Bonus Leaves: Outline any supplementary or top-up leave provisions.

👉Availing Protocols: Define the frequency, caps, and specific conditions under which an employee can avail leave.

👉Eligibility Criteria: Identify who qualifies for each leave category.

👉Approval Matrix: Decide the hierarchy of authorization and their respective limits.

👉Weekends & Holidays: Outline the stance on weekends or holidays falling within leave periods.

👉Encashment: Specify which leave types can be monetized, the ceilings, and the applicable salary components.

👉Year-End Regulations: Set guidelines on carrying forward leaves, lapsation, and other year-end specifics.

👉Documentation: For specific leaves like Sick or Maternity, ensure the required paperwork is clear and accessible.

👉Prorated Guidelines: Detail calculations for leaves in partial work years, especially for new joiners.

A structured approach to granting leaves ensures clarity and fairness across the board.

Leave policy for employees in India - What are the other factors to consider?

Here are the following set of guidelines to consider for crafting a leave policy for employees in India.

1. Quantum of Leaves

  • Standard Leaves: State mandates guide some leaves like annual leave and sick leave. E.g., In Karnataka, 18 days of annual leave and 12 days of sick leave are obligatory.
  • Discretionary Leaves: Organizations define quantum for others, like Marriage Leave, which can range between 3 to 15 days.

2. Grant Frequency

  • Leaves can be doled out monthly, quarterly, half-yearly, or annually. 
  • While yearly provisions offer flexibility for extended breaks, monthly allocations can be restrictive unless negative balances are allowed.

3. Expiry Duration

  • Statutory Leaves: For leaves like Annual/Earned Leave, balances might be carried to the next year, but with a ceiling. Excess may either be converted to cash or lapse.
  • Other Leaves: Categories like sick or casual leave often lapse at year-end. Some special cases, like compensatory off, have short-lived validity.

4. Eligibility & Restrictions

  • Conditional Grants: Some leaves are unique, e.g., Marriage Leave might be a one-time offer. Others might be gender-specific or based on employment status.
  • Eligibility Periods: Certain leaves might require a waiting period or certain conditions like exhaustion of other leave balances.

5. Top-Up Grants

Beyond regular policies, management might decide on occasional extra leave on a case-by-case basis.

6. Pro-Rata Logic

For employees joining mid-year, you'll need a policy to grant leaves proportionally. This ensures fairness but might bring up challenges with fractional leave days, necessitating a clear rounding-off policy.

7. Availing Rules

Beyond mere balances, the process of availing leaves can be intricate. Consider:

  👉Advance notice requirements & approval processes.

  👉Documentation, especially for leaves like sick leave.

  👉Minimum and maximum durations per leave type.

  👉Frequency restrictions or cooling-off periods between leaves.

  👉Definitions of what constitutes long leave.

  👉Special considerations for periods like notice periods.


Crafting a clear, yet flexible policy is key. Keep it employee-centric, yet aligned with organizational needs.

Leave encashment policy - Points to note!

What is leave encashment?🤔

Leave Encashment is when employees trade accumulated Earned Leave balances for monetary compensation. Essentially, they receive funds in exchange for surrendering their leave days.

When does leave encashment occur?

Leave encashment comes into action for two primary scenarios:

👉Year-end, when leaves might not carry over to the subsequent year.

👉Upon an employee's exit, as part of the Full & Final settlement.

Leave encashment calculation - How to calculate leave encashment in India

Typically, in India, it's based on the Basic salary component. However, some firms might use the Monthly CTC as a benchmark.

Key Aspects of leave encashment calculation are -

  • Minimum balance required for encashment.
  • Minimum and maximum days permitted for encashment at once.
  • The annual cap on the number of encashment instances.

Year-End Rules: Wrapping up the Leave Year

Much like financial year-end procedures, leave accounting mandates an annual closure. Here's what you need to decide:

👉Carry Forward vs Lapse: Decide if accumulated leave balances for a type will move to the next year or lapse.

👉Annual Balance Limit: Determine the ceiling for leaves that can be transferred from the annual balance.

👉Overall Limit: Ascertain the utmost cap on leaves that can be carried over, irrespective of the annual accruals.

As HR professionals, it's crucial to understand these processes thoroughly and communicate them effectively to the workforce. Establishing clarity reduces confusion and ensures smoother operations.

Creating a holiday list

Creating a holiday list not only provides employees clarity about their off days but also plays a pivotal role in leave computation.

Here is what you should consider before creating a holiday list as a part of your company leave policy -

👉Geographical Differences: If your organization spans multiple locations, tailor holiday lists based on local observances.

👉National vs. Regional Holidays: Include national holidays consistently, but ensure regional celebrations are represented to promote inclusivity.

👉Consider Workplace Demands: If your industry operates on public holidays, think about alternate compensations or benefits.

👉Offer Flexibility: Allow for a few 'floating' holidays, letting employees choose personal or cultural days off.

👉Communicate in Advance: Share the finalized list early so employees can plan accordingly.

👉Feedback Loop: Regularly update the list based on employee feedback for a harmonious workplace.

Weekend Policy - Navigating through the week off rules

Every organization must have a clear weekend policy, outlining the designated days when employees are entitled to their weekly breaks. 

The labour laws lay down the basic standards for weekly offs. Moreover, paid weekly offs are an essential element in leave computation.

Here are some commonly adopted weekly off structures:

👉5-day Work Week: Employees work from Monday to Friday, taking both Saturday and Sunday off.

👉6-day Work Week: The work stretches from Monday to Saturday, granting only Sunday as a day off.

👉Second Saturday Off: Apart from the regular Sunday off, every second Saturday is also a non-working day.

👉Alternate Saturday Off: Employees work on the 1st, 3rd, and 5th Saturdays of the month, with the 2nd and 4th being off, in addition to the regular Sunday.

Creating an ideal leave policy for employees - Here is your summary!

🎯Stay Updated: Always include details like the effective date, revision number, and revision date in your company leave policy

🎯Logical Structure: Make sure it's well-organized with numbered sections for easy navigation.

🎯Policy Labeling: Stamp the name of the policy on every page.

🎯Contemporary Touch: Incorporate tech-savvy procedures, acknowledge emerging leave types, and ensure mobile-friendliness.

🎯Clarity is Key: Adopt a clear and consistent language, making it effortlessly comprehensible.

🎯Keyword Definition: Define essential keywords meticulously to eliminate any potential confusion.

🎯Protection Measures: Shield the company from potential liabilities with clear terms.

🎯Regular Reviews: Pencil in a review and audit every two years – staying updated is crucial.

🎯Stay Connected: Always have employees provide contact details during their leave for any necessary communication.

Remember,  a stellar leave policy 📄 is transparent, up-to-date, and all about balancing employee-company harmony.

Download Leave Policy Template


This is a general guide, not a legal document, and may not cover all laws under the Indian Labour law. Neither the writer nor Pazcare will be liable for any legal consequences arising from its use. Consult with a legal professional to ensure compliance and adapt this guide to your business needs.

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